When the Lords' off-payroll conclusions clash with an IR35-absent Finance Bill

Yesterday afternoon’s House of Lords announcement that its economic affairs committee’s report into off-payroll working is set to land on the very same day of the second reading of a Finance Bill which (according to updates on the parliamentary website), will not contain IR35 clauses has caused a stir among contractors, writes Seb Maley of Qdos Contractor. 

Many are wondering; is this a sign that needless changes to the off-payroll working rules will be put off for yet another year after a recommendation from the Lords that businesses will not have recovered from COVID-19. Or, better still, does it mean these changes to the intermediaries legislation will be scrapped altogether?

Lords have left little choice 

We’ll have to wait and see. My hunch is that the arrival of the committee’s expectedly critical report on this date meant the government had little choice but to remove IR35 from the Finance Bill -- at least for the time being, else it would face huge criticism. 

Leaving IR35 reform in the Finance Bill on Monday in an attempt to have it signed off in parliament on the very day that the committee has its less than flattering say on the changes would show the government to simply not be listening to some very respected inquisitors. It would be a move that would undermine the peers’ thorough investigation into reform while raising serious questions over the ‘bite’ that other committees might have in the future. Would those future inquiries look ‘toothless’ before they have even begun?

This wouldn’t be the first time for the government to bury its head in the sand of course -- nor will it likely be the last. And the chances are, the Treasury won’t like what it’s going to hear in the report from the “switched on” Lords. If the questions put to Jesse Norman by committee chair Lord Forsyth in his March 26th letter are a sign of things to come next week, the many holes in the government’s plan for IR35 reform will be exposed yet again. Those holes range from HMRC’s blind faith in its IR35 tool (CEST), to the fairness (or more accurately, unfairness) of the planned changes.

Division during a pandemic? Thanks, but we'll pass (just like the bill)

There’s also the view that by removing IR35 -- a particularly controversial issue -- from the Finance Bill, it makes it easier to pass it through parliament quickly, without debate. With the government focused on managing the COVID-19 pandemic, the concerns raised by many MPs about IR35 reform could hold things up and cause a delay. The same goes for any other contentious legislation -- such as a hotly debated Brexit measure, which the BBC reported “would certainly have resulted in a contested division at the end of the day.”  

So how much should we read into the glaring omission of reform to the off-payroll working rules from the Finance Bill, if anything at all? In my view, it’s a step in the right direction. But we must take into account the unique circumstances that the government finds itself in. The usual rules don’t seem to apply right now. This was reflected very recently when the Treasury Secretary caught us all off-guard at 7pm one March evening following a Budget that was cancelled, and a chancellor that was replaced by a junior minister, by announcing that IR35 reform would be delayed by a year because of COVID-19. 

The record does not bode brilliantly

Let’s also remember that the government has given no indication that private sector reform of the off-payroll rules will be scrapped -- not once. Last month, the Treasury’s Steve Barclay insisted “this is a deferral, not a cancellation”, while Mr Norman and his team are unwavering in their opinion that the changes are a necessary course of action. 

We all know IR35 reform is unnecessary. The government doesn’t see things this way though -- it believes that by 2023/24 supposed IR35 non-compliance will result in a £1.3bn a year hole in the Treasury’s coffers. Perhaps this is another reason for an administration already facing huge financial challenges to forge ahead with the reform. 

I’m well aware that things are changing quickly and the goalposts may have shifted in the month or so that has passed since the deferral was announced. But until we have absolute, official confirmation that the changes will not be rolled out next year, we must work off the basis that they will arrive on April 6th 2021, even if the revised legislation is missing from the Finance Bill on Monday.